Deutsche Bank said that the bear market rally in equity markets will continue into 2023 before turning downward as a recession in the world economy starts to impact the economy.
Deutsche Bank said that recession was likely to take hold from mid 2023 and would also be felt in credit markets where U.S. high yield spreads should widen to 860 basis points by end-2023.
Deutsche Bank viewed an end to the U.S. tightening cycle as positive sentiment for Treasuries with the 10-year government bond yields expected to finish 2023 around current level at 3.65%.
The financial firm expected S&P 500 to rally to 4,500 in the first half of next year before starting to retreat. That would be roughly 14% upside from the current level of 3,963 points. The index fell nearly 17% this year and around 22% from its previous high of 4,818 points in late December last year.
More importantly, the firm expected to see a reversal in the greenback’s rally with euro/dollar moving further away from parity to 1.10 and likely reaching 1.15 by late 2023.
Deutsche Bank noted that the oil market could temporarily see Brent crude at $100 a barrel in the first quarter of next year due to supply disruption before dropping to $80 by year’s end.